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Message Boards Digest

January 5, 2022

Here are the most recently added topics on the BenefitsLink Message Boards:

Peter Gulia created a topic in Distributions and Loans, Other than QDROs

Is it okay to continue periodic payments after the participant’s death?

"I am thinking about what procedures (and perhaps plan-document provisions) an individual-account retirement plan might want for situations in which the plan continues periodic payments to a participant for many months (or even a few years) after the participant’s death. Imagine a situation like this. (This is based on a real situation, but I changed a few facts to protect the employer/administrator’s confidences, and to simplify the legal issues.) In 2017, Jack was 62, eligible to retire, and did retire. Although the plan precludes a life-contingent annuity, the plan allows other periodic payments (subject to minimum-distribution provisions no more restrictive than as needed to meet IRC § 401(a)(9)). Using the recordkeeper/trustee’s form (which the employer/administrator adopted), Jack instructed payment, by direct-deposit electronic funds transfer, of $3,000 every month, to be paid on the first banking day of each month. (Jack never had a spouse.) In 2017-2020, all goes well. On January 9, 2021, Jack dies. Then, no one told the employer/administrator, the recordkeeper/trustee, or Jack’s bank about Jack’s death, and none of them had any knowledge of Jack’s death. On January 4, 2022, Martha (Jack’s friend, but not a relative) informs the recordkeeper/trustee about Jack’s death, and furnishes the death certificate, Jack’s will, and a probate court’s letters testamentary that appoint Martha as Jack’s personal representative. The trustee promptly turns off Jack’s periodic-payment instruction. But before this, the plan made, and Jack’s bank accepted, twelve payments ($36,000) after Jack’s death. The employer/administrator checks Jack’s plan beneficiary designation; it names someone who is not a legatee or beneficiary under Jack’s will, and has no apparent relation to any of them. Here are my questions for BenefitsLink neighbors, hoping some have experience with this problem: 1) Must the plan try to get the $36,000 from the bank? 2) If the plan tries and the bank refuses, how strong or weak would the bank’s defenses be in the plan’s lawsuit to recover the $36,000? 3) If the plan does not get the money from the bank (and no one otherwise restores Jack’s account), how strong or weak is the designated beneficiary’s claim that the plan fiduciaries’ actions deprived the beneficiary of money the beneficiary otherwise would get? Because the plan’s participants include a few thousand retirees, the employer/administrator presumes the problem of periodic payments continuing after a participant’s death (until the recordkeeper/trustee is notified) is recurring. A) What procedures might help manage this problem? B) Could a plan-document provision legitimate after-death payments to a participant (if no surviving spouse has any ERISA § 205 right)? (The employer uses no IRS-preapproved document. Also, the employer’s frequent mergers and acquisitions would set up an opportunity to get an IRS determination on whatever text the employer might add.) C) Would a plan-document provision be wise or unwise? Any further suggestions?"
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Catch22PGM created a topic in Mergers and Acquisitions

When is ownership determined for coverage testing?

"Company A and Company B are both corporations owned 100% by Fred so we obviously have a brother-sister controlled group. Both Company A and Company B sponsor 401(k) plans - both have 12/31 PYE, same HCE definition, and current plan year testing for ADP/ACP. Historically the Company B 401(k) plan has failed coverage testing so the plans have been aggregated to pass coverage and ADP/ACP. Fred sells 100% of his stock in Company B to his best friend Barney on December 1, 2021, so there is no longer a controlled group. Nothing else changes other than the stock ownership and there is no affiliated service group. 1. Are the employee populations of Company A and Company B required to be combined for coverage in 2021? 2. If they aren't required to be combined, can the plans be permissively aggregated for 2021 (and 2022 if desired)? I assume 1 is no and 2 is yes since the 410(b)(6) transition rule allows the parties to a stock acquisition to test their plans for coverage and nondiscrimination purposes as though the transaction did not occur, but I'm just not 100% confident in my thinking... or there was too much holiday cheer last week and my brain still isn't functioning properly."
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RatherBeGolfing created a topic in Qualified Domestic Relations Orders (QDROs)

DRO assigns part of APs benefits to Participant

"This is a new one for me. Short DRO incorporates the much longer Marital Settlement Agreement by reference. The MSA awards 50% of the funds accrued from date of marriage to date of the divorce, adjusted for earnings (marital portion). The MSA further states that Participant shall receive $20,000 from APs share of the marital portion of Participant's retirement account by virtue of the same DRO that divides the marital portion. I may be grumpy due to the lazy DRO which made me go through the MSA to find the relevant language, but this doesn't sound right to me. If AP has agreed to pay P $20,000 from APs share of the marital portion, P can use the MSA to enforce that agreement. It shouldn't be the plans responsibility to pay P from P's retirement account using a DRO that assigns the benefit to the AP but with part of the award payable to P. Am I missing something here?"
10 replies so far   |    Click Here to Add a Reply

Ananda created a topic in Plan Document Amendments

Backdating Plan Amendments

"I am advising a TPA firm that unfortunately had an employee who helped backdate a plan amendment for a plan customer. This means that the plan client and TPA missed a plan amendment deadline but backdated the signature date to be within the deadline. This happened fairly recently. The question is how to correct this. My opinion is to reach out to the plan customer and draft a new plan amendment which rescinds the backdated plan amendment. After this is accomplished I will determine through EPCRS what additional steps need to be taken. Any thoughts on this as to whether rescinding the backdated plan amendment is the right first step here and then what additional steps need to be taken, other than using EPCRS?"
8 replies so far   |    Click Here to Add a Reply

Egold created a topic in 401(k) Plans

Maximum 401k safe harbor plan for 2021

"May a 55 year old participant earns 200,000 (sole participant) May his 2021 contribution be $20,500 deferal 6, 500 catchup 6,000 3% safe harbor Total $33,000 for 2021 Is the 33,000 allowed"
6 replies so far   |    Click Here to Add a Reply

thepensionmaven created a topic in Retirement Plans in General

Dental practice with 3 plans

"A dental office consisting of two dentists and about 5-6 employees. Currently there is one profit sharing plan and all the money is pooled. Each dentist wants to take his portion of the pooled account and open up a new plan (not account, but plan) as well as creating a new plan (not account, but plan) with a pooled account for the participants. Does not make any sense to me, keep the existing plan and amend to allow for individuals to direct their own investments; but the dentists do not want to do that. Is this discriminatory??"
2 replies so far   |    Click Here to Add a Reply

Jakyasar created a topic in Retirement Plans in General

Any correlation for contributions when spouses are involved?

"Hi I believe the answer is no issues but always would like to confirm: Common factors: Company A has a 401k/PS plan Joe and Mary are married and have no minor children at this time Mary owns 100% Company B and has no business relationship with Company A/no affiliation Scenario 1 Joe is an officer of Company A (no ownership but CFO and making over threshold) Joe's wife Mary also an employee of Company A - for all purposes, a rank&file employee Company A provides ER contributions to both - Joe is at 415(c) dollar limit Company B - no employees other than Mary - also provides ER monies to Mary No issues as well as combined 415(c) limits for Mary, correct? Scenario 2 Now Joe owns 49% of Company A. Other 51% is owned by unrelated party. Mary is still an employee but now HCE due to attribution No issues as well as combined 415(c) limits for Mary, correct? Scenario 3 Same as Scenario 2 except Joe now is also employed by Company B Company B pays Joe 305k of salary and wants to provide Joe maximum PS - in addition to Mary So, Joe can get maximum limits in both companies separately, correct? What am I not asking here? Thank you"
1 reply so far   |    Click Here to Add a Reply

BG5150 created a topic in Distributions and Loans, Other than QDROs

W-4P or W-4R for RMDs?

"I always assumed that W-4P was used for RMDs. I just became aware of the existence of W-4R. W-4P is for periodic distribs from a plan and the -4R is for non-periodic payments. Are RMDs considered periodic from DC plans? Most of the participants' RMDs that I work with are pretty much on an ad hoc basis: they take them at various times during the year. I have one lady who takes quarterly payments totaling her RMD for the year, but most take just one payment at the time it suits them. So, should we be using W-4P or -4R?"
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